"Boris Johnson, PM", is a headline that may soon front newspapers, and markets are not to so enthusiastic about it. Backbenchers of the ruling Conservative Party have shown PM Theresa May the door. She pledged to set out a timetable for stepping down in early June, just after the next Brexit vote and regardless of the result. Johnson, a staunch Brexiteer is the leading candidate to replace her.

If the former Foreign Secretary enters Downing Street, he may take the UK out of the EU without a deal, the worst case for markets.

The opposition Labour party will likely end the cross-party talks now that May is on her way out. Leader Jeremy Corbyn is reportedly warming up to supporting a second referendum. If this option of potentially reversing Brexit altogether gains traction, the pound will have room to recover.

The internal UK discussions are not the only ones on the brink of collapse. The Chinese media says the country is no longer interested in talks with the US as the US blacklist on Huwaei, a telecommunications giant comes into effect today. The deterioration weighs on markets and pushes the safe-haven greenback higher.

Overall, political developments in the UK and also later in the US are set to dominate.

GBP/USD Technical Analysis - Oversold

GBP/USD is trading very close to the February low of 1.2775. A drop below this level will already send it to the lowest since January. However, the Relative Strength Index on the four-hour chart is well below 30, indicating oversold conditions. This extreme position implies a rebound may be coming.